A Brief Guide for Potential Investors The answer to this question depends on many factors, such as the chosen business model, the state of the market, the target audience, and so on. To begin with, we would like to make a reservation that in this publication we will be guide by the classic definition of an exchange. Cryptocurrency trading platforms have brought many innovations and somewhat change traditional work schemes, but in any case, exchanges represent and shape market activity, which ultimately determines the price of an asset.
How much do crypto exchanges earn
A cryptocurrency exchange in its pure form is a close, self-sufficient system that operates on the ECN (electronic communications network) principle and has a good level of liquidity. If trade orders are sent for execution to external liquidity providers (for example, other cryptocurrency exchanges), we are talking about a brokerage model (straight-through transaction processing or STP). Most trading platforms combine these models depending on the current situation, order volume, and other factors. The model by which an order is execute can also determine the amount of income of the crypto exchange. We will also talk about this below. Now let’s figure out how and in what ways a cryptocurrency exchange makes money.
Sources of income for cryptocurrency exchanges
So, how do the platforms that are include in the world rankings of crypto exchange income earn? The exchange profit in this case is the difference between the crypto exchange income and operating expenses, such as maintenance, promotion, liquidity level support and taxes. In today’s article, we will try to assess the earning potential of crypto exchanges as objectively as possible.
Trading commissions
The main source of income for crypto exchanges is trading commissions on transactions made by exchange users (traders). Since a transaction involves the simultaneous closing of two counter orders (sell and buy), then, for example, with a trading commission of 0.1% of the order value, the cryptocurrency exchange will ultimately take both a trading commission from the seller’s order and a commission from the buyer’s order (i.e. 0.1% + 0.1%). However, if the order is sent for external execution, the exchange charges a commission only from one side of the transaction.
In order for a cryptocurrency
Exchange to generate trading commissions from transactions and bring stable revenue to its owner, it is necessary to create conditions for active trading, and for this, first of all, a sufficient number of active users are neee. Of course, there are tools to stimulate trading activity (market makers, trading bots), but it is worth remembering that trading commissions that bring money to the exchange can only be generate by real traders.
In this regard, the metric of the number of active users (“active users”, “AU”) is of crucial importance. It should be note that the financial sphere of cryptocurrency exchanges is still very close, but some fundamental information is still known.
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What is the income of cryptocurrency
Exchanges these days ? As an example, let’s take the end of 2021 and official information about one of the largest exchanges, namely the power of odoo in action the Binance cryptocurrency exchange. According to available data, since the beginning of 2021, Binance’s trading revenue has amounte to more than $ 1.8 billion. With 28.6 million active users, Binance’s peak trading volume in 2021 reache $ 76 billion. Depending on the transaction volume, fees range from 0% to 0.50%.
It’s worth comparing these figures mailing lead to the period when the crypto market bottome in 2018, and only 313,000 users were trading on Binance. Even this activity, which was considere quite low, brought high revenues to popular cryptocurrency exchanges, with Binance’s profit amounting to $446 million. Of course, compare to the data for 2021, this figure is not as impressive, but it perfectly demonstrates how exchanges can stay afloat even in the most difficult times.
An important point that affects
How much crypto exchanges earn is the average amount trade by one active user. It is logical to assume that the larger this amount, the higher the commission receive by the exchange. However, only the volume of transactions by active users matters, and not the total trading volume on the exchange, which can be generate by trading bots by 70% or more.
In addition to trading fees, users of trading platforms pay withdrawal fees. The size of these fees depends on many factors: the asset in which the withdrawal is made, the amount of funds, and the method of transfer. Some trading platforms prefer to charge a fixe withdrawal fee, and some, mainly little-known and young crypto exchanges, even waive this fee, thereby trying to attract new users. Note that deposit fees are not recommende even for popular platforms, as they are a strong deterrent.
Large crypto exchanges can charge
Between $2 million and $5 million to add a new coin to their list of tradable cryptocurrencies. At one of the TechCrunch conferences, the co-founder of Ethereum accuse exchanges of even higher listing prices – up to $10-15 million. There is no average listing price: each project has its own individual price, and the set of services that projects nee to order to get liste varies from exchange to exchange. Often, it includes marketing services for the token and technical expertise.
